Employee Output Response to Stock Market Wealth Shocks

Abstract

This paper uses individual-level data linking stock investments with work performance to examine how changes in stock market wealth affect worker output. We document that a 10% increase in monthly stock investment returns is associated with a decrease of 3.8% in the same investor’s next-month work output on average. The negative output response is not driven by concurrent economic conditions and is unexplained by investor-specific liquidity needs. Consistent with the wealth-effect interpretation, the response is stronger for higher-income workers. We also uncover asymmetric responses to stock market gains and losses: a decline in stock investment returns is followed by lower output especially for male and younger workers. Overall, our results highlight a novel channel of transmitting stock market fluctuation through labor supply.

Keywords: Stock Investment Return, Stock Market Wealth, Consumption, Worker Output, Work Performance, Labor Supply, Household Finance

JEL Classification: D14, G12, G51, J22, J31